USDA Outlook for U.S. Agricultural Trade

USDA Outlook for U.S. Agricultural Trade - 20 February 2014

The fiscal 2014 forecast for agricultural exports is revised up from the December estimate by $5.6 billion to a record $142.6 billion. The forecast for grain and feed exports is boosted $3.2 billion from December to $31.3 billion on greater volumes of wheat, corn, and feeds and fodders. Corn jumps by $1.2 billion to $8.6 billion as strong import demand from Mexico, South Korea, and Europe more than offsets lower sales to China. Oilseed and product exports are forecast at $31.4 billion, up $2.6 billion, driven by record soybean and near-record soybean meal exports. The soybean export forecast is raised $1.8 billion to $21.7 billion as strong demand from China and limited competition to date from South America add to both volume and unit value. Higher unit values have increased the cotton export forecast by $100 million to $4.4 billion. The export forecast for livestock, poultry, and dairy is lowered by $200 million to $31.6 billion, with reductions to poultry, pork, and other livestock products outweighing gains to dairy and beef. The horticultural product exports remain unchanged from the record December forecast of $34.5 billion.

U.S. agricultural imports for fiscal year 2014 are forecast at $110 billion, which is up slightly from the December estimate. This forecast is 5.9 percent greater than the fiscal 2013 import total. The estimate is consistent with a moderate recovery of import demand. The forecast trade balance in fiscal 2014 is up $5.1 billion from December to $32.6 billion, but still trails the fiscal 2013 surplus of $37.1 billion.

Economic Outlook

Economic Outlook World Growth Expected to be Up in 2014 and U.S. Dollar to Strengthen

World growth, at 2.1 percent in 2013, is projected to rise to 3.2 percent in 2014. Trade growth, estimated at 2.8 percent in 2013, is expected to be 5 percent in 2014, and the primary support of higher world growth in 2014. Asian gross domestic product (GDP) growth, at over 4.4 percent in 2013, will rise to 4.9 percent in 2014. China and other emerging Asian economies, in pursuing policies of more consumeroriented and sustainable growth, have become less export dependent. Developing Asia is seeing stronger domestic demand growth, triggered by higher wages and easier credit. Countries such as China, concerned that growth in real estate prices has boosted inflation, instructed monetary authorities to slow credit expansion. As a result, China is expecting a modest slowdown in GDP growth to 7.4 percent in 2014. Several other economies in Asia, such as the Philippines, are slated to see slower growth. However, Japan, South Korea, Malaysia, India, Thailand, Vietnam, Oceania, and smaller economies in the continent are expecting stronger growth in 2014.

Stronger Western Hemispheric and European economies will further boost world growth in 2014. In particular, North American growth is expected to move up in 2014 as the U. S. recovery accelerates in 2014. The United Kingdom is projected to be the growth leader in Western Europe. The Latin American growth pick-up in 2014 comes with improved prospects for Chile, Mexico, and smaller Latin economies, which offset slowdowns in Argentina and Brazil. Europe is expected to come back from recession as its economy moves from little change in 2013 to a gain of 1.6 percent in 2014.

World trade growth’s acceleration in 2014 comes as a speedup of North American, Japanese, and Latin American export growth boosts trade to and from other areas. The dollar is projected to appreciate 1.3 percent in 2014 on top of 2013's gain. The U.S. stock market boom in 2013 was a reflection of the appeal of U.S. assets. Nevertheless, the continued low value of the dollar, compared to 2000-10; a lowered cost of production in manufacturing and agriculture, thanks to cheaper energy; and higher growth in Europe and Latin America will combine to further support U.S. farm and manufacturing export growth in 2014. The stronger U.S. economy in 2014 will lift U.S. import demand even as U.S. exports rise, providing a boost to world growth beyond North America.

The main risk to higher world growth in 2014 would be a BRIC (Brazil, Russia, India, and China) growth slowdown from increased credit tightening, especially in China. Most analysts regard such events as low probability over the next year.

Export Products

The fiscal 2014 forecast for grain and feed exports is boosted $3.2 billion from December to $31.3 billion on greater volumes of wheat, corn, and feeds and fodders. In addition, nearly all other categories are raised from last quarter. Feeds and fodders and products are higher, principally because of greater volumes of distiller’s dried grains (DDGS) to China, but also supported by higher corn prices. Corn jumps by $1.2 billion to $8.6 billion as strong import demand from Mexico, South Korea, and Europe more than offsets lower sales to China. Combined with less competition from Argentina, U.S. corn exports are increased 5.0 million tons. Sorghum value is nearly unchanged; strong demand from China is supporting unit values but is offset by slower sales to Mexico as that country switches to more competitively priced corn.

Wheat exports are up $600 million to $7.8 billion on larger volume. Logistical issues in Canada and a restrictive export policy in Argentina are creating opportunities to expand U.S. exports.

Rice exports are up $100 million to $2.2 billion based on higher prices for medium and short grain rice on concerns over the California drought. Volume is up 100,000 tons to 3.7 million on strong shipments to the Middle East.

Fiscal 2014 oilseed and product exports are forecast at $31.4 billion, up $2.6 billion from the December estimate, driven by record soybean and near-record soybean meal exports. The soybean export forecast is raised $1.8 billion to $21.7 billion as strong demand from China is resulting in higher prices. Soybean meal exports are raised $850 million to $5.1 billion as strong foreign demand and lagging Argentine sales have afforded additional export opportunities at higher-than-expected prices. The soybean oil export forecast is up $90 million to $609 million as volume gains more than offset lower prices.

Fiscal 2014 cotton exports are forecast at $4.4 billion, up $100 million from the December estimate due to higher unit values. World market prices have exceeded expectations as short-term limitations on global free supplies have outweighed concerns about potential drawdown of China’s surplus stock. The export volume forecast is unchanged at 2.3 million tons.

The fiscal 2014 export forecast for livestock, poultry, and dairy is lowered $200 million to $31.6 billion, with reductions to poultry, pork, and other livestock products outweighing gains to dairy and beef. Beef exports are raised about $300 million to $5.3 billion on higher volumes, while unit values are unchanged. Despite tight supplies and elevated prices, continued expansion in Asia will bolster shipments. Dairy exports are up $400 million to $6.3 billion as strong global demand continues to support high prices. Poultry exports are down $100 million to $6.3 billion, primarily due to lower unit values for broilers. Pork exports are lowered $100 million to $5.4 billion as tight supplies and high prices reduce competitiveness.

The fiscal 2014 export forecast for horticultural products is a record $34.5 billion, unchanged from the December estimate though subcategories have been revised. The fresh fruit and vegetable forecast is lowered $200 million to $7.9 billion on slightly lower-than-anticipated volumes to Mexico and Europe. The processed fruit and vegetable forecast is reduced $300 million to $7.7 billion on lower volumes to Canada, Mexico, and Japan. The whole and processed tree nut forecast is revised up $600 million to $8.4 billion due to a combination of higher unit values and increased shipments to Europe and China. The sugar and tropical product category forecast is unchanged at $6.9 billion

Regional Exports

Agricultural exports in fiscal 2014 are at a record $142.6 billion, which is $5.6 billion higher than the December forecast and $1.7 billion above final fiscal 2013 exports. China, Southeast Asia, South America, and the EU account for most of the increase from last quarter.

Asia

Exports to China are forecast up $3.5 billion to a record $25.0 billion. The soybean export value is expected up on strong Chinese demand coupled with higher U.S. prices. Greater volumes of DDGS shipments, combined with strong demand for sorghum, tree nuts, and dairy, also helped boost the export forecast. First-quarter (October through December) exports to China set a new record and are 23 percent ahead of the same period a year ago. China is once again forecast to be the top U.S. market.

Hong Kong is forecast up $300 million from the December forecast to $3.6 billion, primarily due to greater beef shipments. Indonesia is increased $300 million to $2.7 billion on the strength of soybeans and dairy exports. The Philippines is raised $200 million to a record $2.6 billion based on strong wheat and dairy sales. Vietnam is up $200 million to $2.1 billion, largely due to higher exports of soybean meal, tree nuts, and dairy.

Western Hemisphere

Brazil is forecast up $400 million to $1.1 billion, mostly due to stronger demand for U.S. wheat, diminished foreign supplies, and issues with domestic quality. Colombia and Peru are each raised $200 million as a result of strong corn shipments.

Europe, Africa, and the Middle East

Exports to the EU are forecast up $400 million to $10.5 billion due to robust demand for tree nuts and corn.

Import Products

U.S. agricultural imports for fiscal 2014 are forecast to be $110 billion, which is $500 million more than the preceding forecast and 5.9 percent higher than that of 2013. This projected growth rate is brisker than the 0.5-percent rate in 2013 but slower than the 9.4-percent increase in 2012. Nevertheless, this expected pace is consistent with a moderate recovery of import demand, which reflects the anticipated 3-percent expansion of the domestic economy this year. Despite a lower unemployment rate, personal consumption spending has not exhibited a vigorous pace as personal disposable income grew by less than 1 percent from October to December 2013 (lower than 3 percent last summer and 4 percent last spring). For all of 2013, personal disposable income was flat (in chained 2009 dollars). Furthermore, the numerous snow storms and severe cold weather in many parts of the country during January and February 2014 are also contributing to weak consumer spending. Indeed, the U.S. import volume for food and farm products in the first quarter of this fiscal year declined by 0.8 percent from the same quarter in 2013.

A number of important commodities had lower import prices in 2013 than in 2012, including coffee beans, palm oil, natural rubber, and sugar. These price declines were largely responsible for the minuscule 0.5-percent growth in total import value in 2013, despite an 11-percent jump in import volume. However, higher prices for other key imports, including cocoa beans, chocolate, coconut oil, and olive oil, partly offset those price declines last year. More stable food commodity prices are expected in 2014 at levels largely comparable to prices in 2013. Thus, the projected 6-percent U.S. import growth for 2014 is mostly attributed to moderately larger shipment volumes.

The lower average prices of tropical commodities in 2013 reduced the forecast for imported sugar and tropical products to $24.5 billion (from the previous estimate of $25.3 billion) in 2014. This $800-million drop, however, is more than offset by the $500-million upward adjustment of imported oilseed products, including olive and tropical oils, and $600-million increase in horticulture imports. Higher prices for olive and coconut oils largely offset lower prices for palm oil. Among other tropical commodities, higher cocoa bean prices are expected to partly offset the lower sugar, coffee, and rubber prices’ effects on their import values.

With respect to horticultural products, higher import values are expected for beer and fresh fruits (based on bigger volume shipments to date for beer and higher unit values for fresh fruits). The smaller import projection for fruit juices is due to declines in both volume and unit value as domestic apple juice production is up this marketing year. For horticultural products as a group, import volume was up 3.7 percent and unit values were up 2.5 percent on average in the first quarter. Positive changes for these general indicators of consumer demand signal larger import values for horticultural products in 2014, which accounted for almost 43 percent of total import value in 2013.

The outlook for processed grain products is raised from $6.7 to $6.9 billion based on larger first-quarter volumes and unit values, including those for wheat and bakery products. This gain pushes up the projection for total grains and feeds from $9.3 to $9.5 billion despite smaller bulk grain and processed feed imports to date. Compared to 2013, however, total imported grains and feeds are forecast to be lowered by $1.8 billion due to lower volumes and unit values for bulk grains and feeds. Bulk corn imports are down sharply to date, while bulk wheat, rice, and oats are up. The projection for imported oilseeds and oilseed products is adjusted upward due to higher olive and coconut oil prices, as well as greater import volumes to date—particularly of soybeans and rapeseed.

The $15-billion projection for imported livestock products in 2014 is $400 million higher than the December forecast and $1.3 billion more than in 2013. This represents a 9-percent gain from 2013 for all animal products. Growth in cattle imports from Mexico and Canada will be limited by tight supplies expected. Beef imports in 2014 are raised to 757,000 tons despite continued strong demand in a number of foreign export markets, especially from Asia. The $4-billion projected import value for beef and veal represents an 8-percent gain from 2013 fueled by strong demand for processing meat and higher prices.

The long-term picture for U.S. agricultural imports is tied to population growth, income levels, price changes, and taste preferences. Population growth is now around 0.7 percent per year, half of the pace of two decades ago. This slowing factor may partially be offset by food taste preferences that favor foreign products. However, the purchasing power of consumers is influenced by price changes in foreign markets as well as by the exchange value of the U.S. dollar. Although the domestic supply of food products has an inverse effect on import demand, their prices have a direct effect. As the United States recovers faster than other economies, personal income and the dollar will likely appreciate relative to other countries and boost U.S. purchasing power. U.S. import volume is then expected to rise relative to import unit values (assuming no other market changes occur). In the long-term USDA projections to 2023, U.S. agricultural imports are forecast to grow at an average annual rate of 3.7 percent.

Regional Imports

The seasonal nature of many imported agricultural products, especially horticulture crops, is dependent on the geographic location of the source region or country. The top five sources of fresh or frozen fruit in 2013 were Mexico, Chile, Guatemala, Costa Rica, and Ecuador. Sixty percent of these imported fruits largely arrive from January to June (the second and third quarters of the fiscal year), when domestic fruits have not yet been harvested. The seasonal import pattern for fresh vegetables is largely concentrated from January to March, when more than 33 percent are shipped compared to the other quarters (26 percent are shipped from April to June). The top five suppliers of fresh vegetables in 2013 were Mexico, Canada, Peru, China, and Guatemala.

Processed fruits and vegetables are imported about evenly during each of the four quarters. The principal exporters of processed fruit (except juices) to the United States are China, Thailand, Mexico, Canada, and the Philippines. Fruit juices are supplied by China (apple juice), Brazil (orange juice), Mexico (orange juice), and Argentina (other juices). For processed vegetables (except frozen), the top sources are Mexico, China, Canada, Spain, and Peru. Tree nuts and their processed products are imported heavily from July to December from Vietnam (cashews), Mexico (pecans), India (cashews), China (other nuts), and the Philippines (coconuts). For wine, 28 percent is imported from October to December largely from Italy, France, Australia, Argentina, and Chile. Imported beer is shipped in large amounts from Mexico and the Netherlands, and essential oils are mostly imported from Ireland (where a large processing plant is located). The largest shares (about 30 percent) of beer and essential oil imports arrive during the summer months.